Venezuela

Caracas tightens currency controls

Oil minister rejects move is ‘stealth devaluation’ as major food producer says production is at risk

CARACAS — Venezuela’s government is tightening a much-used loophole in rigid currency controls as part of an overhaul of its foreign exchange system to safeguard a dwindling supply of dollars.

As part of the changes announced yesterday by Oil Minister Rafael Ramírez, Venezuelans travelling abroad will no longer be able to purchase air tickets or obtain cash at the official rate of 6.3 bolívars per dollar.

Instead, they’ll now be required to make purchases at a higher rate established at weekly Central Bank auctions, where the greenback currently fetches about 11 bolívars. The fluctuating rate will also apply to the limited quantity of money Venezuelans can send abroad to family members and to foreign companies investing in Venezuela.

Ramírez, who is also President Nicolás Maduro’s top economic adviser, denied that forcing travellers to pay more for dollars signals a stealth devaluation as many economists have argued. He said that more than 80 percent of the nation’s dollars will still be sold at the official rate.

The Central Bank’s international reserves have fallen to a 10-year low as demand for air tickets and dollars has soared in tandem with 50 percent inflation and the bolívar’s plunging value in the black market. Foreign airlines say they have an equivalent of $3.3 billion in bolívars tied up in Venezuela by decade-old exchange controls that make it impossible to send earnings abroad.

Ramírez said that last year alone more than US$8 billion leaked from the oil-dependent economy as even some non-Venezuelan travellers purchased hard currency at the “preferential” rate.

“The big debate here is whether we give dollars to travellers or we import food,” Ramirez told reporters in Caracas.

Ronald Balza, an economics professor at the Andres Bello University in Caracas, said that using multiple exchange rates won’t stop the haemorrhaging of dollars, galloping inflation and shortage of basic goods created by years of government controls and excessive spending.

“The distortions the government is facing right now and the type of policies it is pursuing lead us inevitably on the path of more devaluation,” he said.

POLAR TROUBLES

Echoing the debate about importing food or giving dollars to travellers, Empresas Polar, the leading producer of processed foods in Venezuela, announced yesterday that production is at risk following the government’s delay in issuing it the foreign exchange it needs to import ingredients for its products.

Empresas Polar announced that the amount withheld so far by the Comisión de Administración de Divisas (CADIVI) is now at USD$463 million. Polar thus has oustanding debts with its suppliers for that amount and has announced that until it can cancel its debts it runs the risk of its suppliers refusing to ship the giant any more products.

Polar directly employs about 30,000 people. About 180,000 people are also indirectly employed by Polar. Among other items, it produces cereals, margarine, cheeses, vinegar, canned goods, and frozen seafood. The authorities have not yet responded to Polar’s announcemen.

Venezuela is particularly vulnerable to instability in the importation of food and the raw ingredients for food processing as the country produces only a very small percentage of the food items that it requires to feed itself.

In the past, oil exports more than made up for the lack of domestic production and easily financed imports but currency controls have hampered the ability of importers to access the inputs for food production.